Keynes and long term accountability

by Jörgen Eriksson on August 31, 2011

During the summer 2011 we have witnessed a dramatic increase in European and American national deficit crises.

It is a macro economic crisis, with national governments unable to manage national debts. Governments have been allowed to fund themselves through borrowing since the 1930s, when John Maynard Keynes proposed that inadequate aggregate demand could lead to prolonged periods of high unemployment.  National governments should borrow and spend on public works in recessions to keep up demand, and thus smooth the transition to the next boom period when the national government budget should run a surplus.

The problem with the theory is that it justifies the decision by many politicians to run an almost permanent deficit. Political parties with the ambition to be re-elected are hesitant to recover the debt by running a surplus. Step by step small and big national decisions have been taken whereby irresponsible overconsumption has continued in too many countries.

The crisis became acute in 2008, as the credit crunch crisis shook the world financial systems, at the same time as it shrunk many economies due to lower economic output. Governments had to spend to save the financial industry and other large corporations, at the same time as their tax revenues were reduced by the crises.

In the wake of all these events we have noted the national and super national stakeholders were taken by “surprise”, as if the results from gradual increases in national debts would not have been inevitable. The long run effect of budget deficits are certain, just as it is for an individual or a company who takes on too much debt, however it is a truth that is conveniently seldom spoken about and pushed on to future decision makers. Politicians have let the ship continue sinking for too long without implementing the necessary countermeasures.

In the Eurozone complexity is added to the situation through the management of 17 different budgets that are often divergent. Some countries have stronger growth and low inflation and others weak growth and high inflation. Macroeconomic issues need to be dealt with in a unified manner without access to the traditional tool of currency devaluation in times of fiscal unbalance, resulting in a very difficult macro-economic environment to manage.

Some politicians in European countries call for centralizing more fiscal policymaking in Brussels under a European Minister of Finance. We believe a sustainable path to recovery is to be found in more local initiatives.  Instead of the current overconfidence in centralization, politicians should go for decentralization and encourage places and regions in Europe to develop their local attraction forces and rebuild European wealth from the local places.

Europe needs to recover and grow from its roots, from the local entrepreneurs, places and regions where entrepreneurial individuals and businesses can find the right climate. It is the task for the numerous European place managers and entrepreneurs to make this happen.

About Jörgen Eriksson :

Jörgen Eriksson is the founder of Bearing and is the Chairman of the firm since it was created. He has successfully expanded Bearing into covering projects on four continents. He is also Adjunct Professor of Innovation Management at the International University of Monaco and at Universitat Politècnica de Catalunya in Barcelona and he is an active member of the Founders Alliance organisation.

Working with consulting engagements across Bearings practices, he has over the past fifteen years participated in and supervised a large number of client projects, from innovation system development and place development and branding, to merger and acquisition assignments and leading edge research and business development activities for key clients.

His new book, Branding for Hooligans, will be published in 2015. It is about how innovation and branding are key survival factors in our modern times of hyper competitive markets.

Prior to Bearing, he was Director of Europe, Middle East, and Africa for Trema Treasury Management, a technology and consulting services provider, supplying financial software solutions for the global financial industry, Clients included The European Central Bank, Citibank, SEB, South African reserve Bank, Deutsche Bank, Abu Dhabi Investment Authority (ADIA), as well as many other large financial institutions and Fortune 500 companies.

Early in his career Eriksson was educated at the Stockholm School of Economics, where he studied economics, financial economics and philosophy. He then worked in Scandinavian investment banks and also for the Swedish Institute of National Defense Research.

You can contact Jörgen on e-mail jorgen.eriksson@bearing-consulting.com, connect on LinkedIn on http://fr.linkedin.com/pub/jörgen-eriksson/0/38/8a0/ and follow him on twitter on joreri508.

{ 3 comments… read them below or add one }

Parinaz Alabaf August 22, 2014 at 08:30

I read your articles.

Jörgen Eriksson Jörgen Eriksson August 22, 2014 at 09:50

Good! I hope you enjoy them!

Parinaz August 22, 2014 at 10:04

I think i can read more of your article regarding this years.i enjoyed it.
Is interesting to read about the year 2011 to present.

Leave a Comment

Previous post:

Next post: